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From Wikipedia, the free encyclopedia

Wrongful dismissal, also called
wrongful termination or wrongful
discharge, is an idiom
and legal phrase, describing a situation in which an employee's
contract of employment
has been terminated by the employer in circumstances where the
termination breaches one or more terms of the contract of
employment, or a statute provision in employment law. It follows that the scope
for wrongful dismissal varies according to the terms of the
employment contract, and varies by jurisdiction. Note that the absence of a
formal contract of employment does not preclude wrongful dismissal
in jurisdictions in which a de facto contract is taken to
exist by virtue of the employment relationship. Terms of such a
contract may include obligations and rights outlined in an employee
handbook.

Being terminated for any of the items listed below may
constitute wrongful termination:[1]

Discrimination: The employer cannot terminate employment
because the employee is a certain race, nationality, religion, sex,
age, or in some states, sexual orientation.

Retaliation: An employer cannot fire an employee because the
employee filed a claim of discrimination or is participating in an
investigation for discrimination. This "retaliation" is forbidden
under civil rights law.

Employee's Refusal to Commit an Illegal Act: An employer is not
permitted to fire an employee because the employee refuses to
commit an act that is illegal.

Employer Not Following Own Termination Procedures: Often, the
employee handbook or company policy outlines a procedure that must
be followed before an employee is terminated. If the employer fires
an employee without following this procedure, the employee may have
a claim for wrongful termination.

In Canadian law, absent a written contract which addresses how
to end the employment relationship, the law implies into the
employment relationship a term that it will not be ended without
"reasonable notice" of its termination. The length of reasonable
notice depends on a number of factors, best described by the
Ontario Court in the 1960 decision of Bardal v. Globe &
Mail:[2]

There could be no catalogue laid down as to what was reasonable
notice in particular classes of cases. The reasonableness of the
notice must be decided with reference to each particular case,
having regard to the character of the employment, the length of the
service of the servant, the age of the servant and the availability
of similar employment, having regard to the experience, training
and qualifications of the servant.

An employer is entitled to dismiss an employee according to the
terms of the employment contract. There are oral employment
contracts, and written employment contracts, and combinations of
oral and written employment contracts. In Canadian common law,
there is a basic distinction as to dismissals. There are dismissals
with cause, and dismissals without cause. Cause is employee
behaviour that constitutes a fundamental breach of the terms of the
employment contract. Where cause exists, the employer can dismiss
the employee without providing any notice. If no cause exists yet
the employer dismisses without providing lawful notice, then the
dismissal is a wrongful dismissal. A wrongful dismissal will allow
the employee to claim monetary damages in an amount that
compensates the employee for the wages, commissions, bonuses,
profit sharing and other such emoluments the employee would have
earned or received during the lawful notice period, minus earnings
from new employment obtained during the lawful notice period. In
Canadian employment law, it has long been the rule that
reinstatement is not a remedy available to either the employer or
the employee - damages must be paid instead.

Although Canadian employment law provides some of the above
remedies, each jurisdiction or country may treat employment law
differently. It is important to determine which jurisdiction the
employment occurs in or is regulated by, then seek appropriate
legal advice relevant to that jurisdiction and its particular
employment laws.

Wrongful dismissal will tend to arise first as a claim by the
employee so dismissed. Many jurisdictions provide tribunals or
courts which will hear actions for wrongful dismissal. A proven
wrongful dismissal will tend to lead to two main remedies:
reinstatement of the dismissed employee, and/or monetary
compensation for the wrongfully dismissed.

A related situation is constructive dismissal, in which
an employee feels no choice but to resign from employment for
reasons imposed by the employer.

One way to avoid potential liability for wrongful dismissal is
to institute an employment probation period after
which a new employee is automatically terminated unless there is
sufficient justification not to do so. The dismissed employee may
still assert a claim, but proof will be more difficult, as the
employer may have broad discretion with retaining such a temporary
employee.

UK law

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Definitions

In United Kingdom law, the concept of "wrongful dismissal"
refers exclusively to dismissal contrary to the contract of
employment, which effectively means premature termination, either
due to insufficient notice or lack of grounds. Although wrongful
dismissal is usually associated with lack of notice sometimes it
can also be caused by arbitrary dismissal where no notice was
required but certain grounds were specified in the contract as
being the only ones available but none existed.

For the technically minded, the wrongful dismissal does not
terminate the contract - it is just a repudiatory breach, ie one
entitling the employee to consider himself no longer bound on the
basis of the employer no longer considering itself bound. The
employer's repudiatory breach (wrongful dismissal) forces the
employee to accept it as he is prevented from earning from the
employer and required to mitigate by working for someone else, thus
terminating the contract[3]. This
does not follow contract law and is an invention by judges,
disliked by others, designed to reflect the reality of employment,
using the dual fictions that because the right to wages depends on
the obligation to work, there is no right to wages if the employer
tells the employee not to work[4]
(forgetting that the employer is not able to terminate the
obligation to work other than in accordance with the contract) and
that the employee has accepted the repudiation by not working for
the employer even though he is willing and able. Otherwise the
employee would be entitled to stay at home at the employer's
request yet sue for unpaid wages as a debt.

An employer is only entitled to dismiss an employee without
notice:

in the first month,

if the contract says so, or

if the employee conducts himself so as to undermine the trust
and confidence such that the employer should no longer be required
to retain the employee in his employment.

The last example, trust and confidence, is commonly known as
"gross misconduct", but in employment law there is no such thing -
only misconduct that does not justify dismissal and misconduct that
does. Conduct entitling the employer to terminate the contract is
conduct indicating the employee no longer considers himself bound
by it and so is technically accepting the termination caused by the
employee. Gross misconduct is really just a vague list of offences
that could most easily justify summary dismissal for a first
offence.

An employee could seriously annoy an employer without indicating
that he no longer intends to be bound by the contract.

Dismissal for a reason contrary to statute or contrary to a
statutory procedure is described as "unfair dismissal" but not all wrongful
dismissals are unfair dismissals, and dismissal by forcing somebody
to resign through serious breach of contract is known as constructive dismissal and
constructive dismissal is usually a wrongful dismissal due to lack
of notice.

Employer loses
restrictive covenants

If an employer dismisses an employee without legally required
notice then the employee is usually not bound by restrictive
covenants[5]
(increasingly though courts treat pay in lieu of notice as curing
lack of notice[6]). This
means the employer of a senior employee privy to company secrets
should be careful not to unjustifiably summarily dismiss him, or
put him on garden leave or pay him in lieu of notice without a
contractual provision allowing it, or even miscalculate his notice
period making it a day short.

Sometimes an employer can restore such covenants in a compromise
agreement by paying a nominal sum of, say, £500 for them. The
employer cannot circumvent the risk of a summary dismissal turning
out to have been unlawful by giving notice, as that would imply the
employee's breach of contract was insufficient to justify summary
dismissal.

Notice
period

The notice period will usually be in the written agreement,
otherwise there are statutory minimums but a court can imply a
reasonable period and often will if it thinks the employee has been
treated shabbily - for example, one week can turn into a month, and
one month can turn into three months. The statutory minima are one
week for one month to two years' service then one extra week per
year of service from two to twelve years up to a maximum of 12
weeks[7]. Common
law notice, used by courts where the contract is silent, depends on
the work, seniority, length of service and payment intervals, but
not on what the employer can afford[8]; senior
specialists can be given six or even up to twelve months.

Right to
work

The employee is always entitled to pay during his employment and
the required notice period. He is often also entitled to work, so
perversely, allowing him to sun himself at home for a month to get
him out the way can be a breach, even though it may be to his
benefit in a way.

If an employer wants an exiting employee out of the way and does
not have the right to put him on garden leave or pay him in lieu of
notice then the only options are to encourage use of holiday and
offer a compromise agreement to waive his right to sue in return
for the intentional breach of contract. Sometimes the breach turns
the termination payment into compensation rather than wages, making
it tax-free, so the employee may be only too happy to go along with
the ruse.

Remedies

In a tribunal the remedy would be compensation. In court the
remedy would be damages but rarely an injunction. An injunction
could be awarded to enforce a contractual disciplinary
procedure[9], but
because compensation is usually an adequate remedy for premature
termination an injunction is generally not available to keep a job
going[10], even
in a redundancy situation where the selection process has been
circumvented[11].

The employee can only apply to the tribunal during the three
months following termination.

Compensation

Losses

For the notice period the employer must pay wages (including any
anticipated pay rise[12]) and
benefits[13]
except holiday.

For wrongful dismissal, it is only possible to claim for lost
earnings[14] and
damage to reputation[15], not
for the manner of dismissal[16].

Benefits

income protection benefit and personal use of company car
(usually running cost or hire car)[19].

Share options will often be excluded by small print.

Bonuses

To avoid arguments about whether these would have been earned it
may make sense to compromise by paying the usual sort of overtime
or bonus he would have got if working. Courts are astute to
employers trying to wriggle out of commission with arguments like
"it was not triggered because we dismissed him before pay day"[20]. The
employer is under a duty to act in good faith[21], not
to excerise discretion spitefully or in bad faith[22] and
not to act perversely, irrationally or capriciously[23].

Deductions

The deductions that can be made from compensation are:

replacement earnings or what the employee should have earned
had he bothered to try (failure to mitigate)[24][25],

social security actually received[26] or
which could have been had he bothered to apply[27]
and

compensation already awarded for unfair dismissal under the
same heading[28].

Mitigation

Because it is a contract claim, the employee has a duty to
mitigate his loss by seeking employment as soon as possible for as
high a wage as possible. So the tribunal or court would deduct
earnings from a new job during the correct notice period from
compensation due, but if the employer attempts to do this
unilaterally, it may simply trigger a claim that would not
otherwise have happened had it turned a blind eye to the employee
making a couple of weeks' wages out of the situation. Due to the
disproportionate cost of employment litigation it is usually
sensible for an employer to err on the side of generosity to try to
ensure the parting of ways is amicable rather than showing off how
many loopholes it can find. Pensions cannot be deducted[29].

It is possible for a contract to be worded so as to make the pay
in lieu of notice a debt to which the emeployee is entitled even if
he gets a new job the next day[30].

Risks

Breaches of
contract

Wrongful dismissal is the lesser type of unlawful dismissal,
costing only what it would have done to keep the employee during
the notice period, but it can be slightly dangerous for the
employer due to the potential loss of restrictive covenants and due
to the employee being able to start alleging all sorts of breaches
of contract to try to use up the £25,000 breach of contract
allowance in a tribunal, and if he takes the employer to court
instead there is no limit and it could end up paying significant
costs.

Examples

Breaches of contract by the employer serious enough to create a
wrongful dismissal are also a constructive dismissal. Wrongful
dismissals not caused by insufficient notice will have been caused
by another breach such as of the duty not to destroy the mutual
bond of trust, and have included failure to inform of pension
rights[31].

The employer has no duty to act what would normally be called in
good faith but must not act in bad faith or insufficiently in good
faith that it breaks the mutual bond of trust[32]. The
obligation is usually not to do anything bad as opposed to doing
something good.

Losses

The employee could allege extra breaches of contract and losses
including:

loss of earnings and psychiatrist fees for psychiatric injury
caused by wrongful dismissal[33],

loss of earnings for the time it would have taken to follow the
correct disciplinary procedure,

loss of earnings for unpaid sick leave caused by bullying,

loss of earnings caused by demotion,

loss of earnings caused by stigma of association with a corrupt
employer affecting many employees (as opposed to an incident of
dishonesty),

redundancy pay lost due to being terminated just before he
would have qualified for two years' service,

loss of health insurance and

loss of chance to claim unfair dismissal if wrongfully
dismissed so that the statutory notice period would have run over
into the second year of service[34] (so
employers can defeat the contractual notice period for the purposes
of preventing unfair dismissal rights arising).

Defences

Successful defences have been:

the employer discovers the employee was in such serious breach
that he could have been summarily dismissed[35]'

contract allowed dismissal a without disciplinary procedure as
long as notice give or paid in lieu[36].

Relation to unfair
dismissal

A wrongful dismissal can be a fair or unfair dismissal, just as
an unfair dismissal may or may not be a wrongful dismissal in terms
of whether the correct notice was given.

If the employee had one year's service he could claim unfair
dismissal if there was something wrong with the decision to dismiss
as opposed to the length of notice. If the wrongfulness was the
lack of grounds then is it pretty certain to also be an unfair
dismissal.

The unfair dismissal claim would, if he is well advised, be in
respect of the post-termination period and sue in court for
wrongful dismissal in respect of the notice period, thus stretching
out the statutory limits by making the unfair dismissal limit only
start running from a later date to allow perhaps more loss of
earnings and ignoring the breach of contract limit by using the
court instead of tribunal to deal with wrongful dismissal. The
burden of proving double recovery is on the employer and tribunal
awards for unfair dismissal can be vague as to what and when they
are for[37].

Relation to constructive
dismissal

A wrongful dismissal can be actual or constructive, but a
constructive dismissal is almost certain to be a wrongful dismissal
since the correct notice will not have been given if the dismissal
was caused by a resignation itself caused by the employer's serious
breach of contract. An employee who was constructively dismissed,
as well as possibly having a claim for breach of the duty not to
destroy the bond of mutual trust, will usually have a claim for
wrongful dismissal. As only economic loss can be claimed for breach
of contract, the main loss will be earnings due to the lost notice
period as opposed to any disgruntlement about the manner or reason
for dismissal, so the constructive nature of the dismissal tends to
disappear into the claim for lost notice period.